The 7 KPI to track to improve your referral program
But launching a referral program is only the first step on the road to success.
To unlock its full potential, marketers need to go beyond implementation and delve into the right key performance indicators (KPIs).
Why are KPIs so crucial?
Simply put, they provide a roadmap to gauge the performance, effectiveness, and profitability of your referral program.
With the right KPIs identified and monitored, marketers gain a deeper understanding of the program's impact, allowing them to fine-tune strategies, optimize outcomes, and achieve remarkable results.
In this article, we will explore the main KPIs that should be on every marketer's radar when running a referral program.
From measuring sharing rates to evaluating the ROI, we will uncover the essential metrics that paint a comprehensive picture of your program's performance.
Before getting started, read our article on how to set up a referral program ?
How do you measure referral program effectiveness?
Here are 7 KPIs to help you analyze your referral program:
- Sharing rate
- Referral visits
- Referral conversion rate
- Referral rate
- Lift on revenue
- Cost per acquisition
- ROI
1. Sharing rate
The sharing rate is a crucial KPI to monitor when running a referral program.
It measures the percentage of customers who share your referral program and recommend your brand to their friends and family.
This can be calculated on your total number of customers, or on the number of customers who joined your loyalty program (if your referral program is part of it).
How to calculate it?
Sharing Rate = (Number of Customers Sharing Referrals / Total Number of Customers) * 100
For example, let's say you have 500 customers, and 100 of them actively share referrals. Your sharing rate is 20%, indicating that 20% of your customer base is actively referring your brand to others.
A low sharing rate suggests that customers are not motivated or satisfied enough to share referrals, which may indicate a need for program improvements or better incentives.
2. Referral Visits
A referral visit is when a recommended friend visits your website after clicking on a referral link that has been sent to him.
How to calculate it?
Referral Visits = Total number of visits from referred friends
This KPI seems pretty clear-cut, but let’s share a short example with you to make sure you understand.
If your customers generated 200 referral links from your program, and 60 people clicked on these links. Your website received 60 referral visits. That’s it.
A low number of Referral Visits indicates that friends are not engaging with the referral links or are not motivated to visit the website.
This could be due to ineffective messaging, unattractive incentives, or a lack of personalization.
3. Referral Conversion Rate
The referral conversion rate is the ratio of referred visitors who convert when they come to your site.
It is calculated by dividing the number of purchases made by referred customers by the total number of referral shares.
How to calculate it?
Referral Conversion Rate = (Number of purchases from referred customers / Total number of referral shares) * 100
Let's say your customers shared 100 referral links. 22 of them result in purchases made by their referred friends. In this case, the referral conversion rate is 22%.
But this example shows a higher-than-average rate.
In 2022, Friendbuy shared 3 ranges to analyze and compare its referral conversion rate with market averages :
- Less than 4% - not great!
- 10% - good results!
- 15% or more - Congratulations
A low referral conversion rate suggests that the referred customers are not converting into actual purchases.
This may indicate issues with the referral program, such as unappealing incentives, unclear messaging, or a suboptimal user experience on the website.
4. Referral rate
The referral rate is the ratio of the total volume of sales made that comes from referrals, meaning they were made by customers who were referred to your business.
This rate is often measured on a monthly or annual basis.
This KPI provides good insights into the impact of referrals on your overall sales.
How to calculate it?
Referral Rate = (Number of purchases from referrals / Total number of purchases) * 100
Let's imagine your e-commerce store records a total of 500 purchases within a given time period. Out of these purchases, 50 can be attributed to referrals. Here, the referral rate would be 10%.
Here again our example is quite higher than average market rates.
Referral Candy tell us that the global average referral rate is around 2.3%.
And here is their breakdown across industries :
If you get a low figure, it means that referrals are not contributing significantly to your total purchases.
This could suggest that the referral program needs improvement in terms of incentives, promotion, sharing, or targeting.
5. Lift on Revenue
The lift on Revenue measures the percentage of additional revenue generated as a result of implementing a referral program.
It helps evaluate the effectiveness of the program in driving increased sales and overall business growth.
How to calculate it?
Lift on Revenue = (Revenue during referral program - Baseline Revenue) / (Baseline Revenue) * 100
Let's assume your business generated $100,000 in revenue during the referral program period.
The baseline revenue, representing the revenue that would have been generated without the referral program, was $80,000 for the same period.
In this scenario, the lift on Revenue would be calculated as: (($100,000 - $80,000) / $80,000) * 100 = 25%
A low score indicates that your program generates very little additional sales. Is it worth all the effort you've put into it?
A negative score means you're generating less sales than usual. That’s a red flag. Your program must therefore be having a negative impact on your customer base.
It may indicate the need for program optimization, adjustments to incentives, or exploring other marketing strategies to drive revenue growth.
6. Cost per Acquisition (CPA)
Cost per Acquisition (CPA) measures the average cost incurred to acquire a new customer through the referral program.
It helps you evaluate the efficiency and profitability of your marketing efforts and assists you in budget allocation.
How to calculate it?
CPA = Total Program Cost / Number of New Customers Acquired
Let's say your referral program incurred a total cost of $10,000 within a month.
During that month, the program successfully acquired 100 new customers. In this case, the Cost per Acquisition would be : $10,000 / 100 = $100
A high CPA implies that the referral program is acquiring new customers at a relatively high cost.
It may indicate the need to optimize the program by adjusting incentives, targeting, or marketing strategies to improve cost-efficiency and maximize ROI.
Speaking of ROI…
7. Return on Investment (ROI)
Return on Investment (ROI) measures the profitability of your referral program by evaluating the return generated compared to the investment made.
This KPI helps assess the program's financial performance and its impact on the overall business.
How to calculate it?
ROI = ((Total Revenue - Total Cost) / Total Cost) * 100
Here is an example. Imagine your referral program generated a total revenue of $50,000 within a specific period.
The total cost associated with running the program, including incentives and marketing expenses, was $20,000.
In this scenario, the ROI is : (($50,000 - $20,000) / $20,000) * 100 = 150%
A positive ROI percentage indicates that the referral program has generated a higher return compared to the investment made.
On the other hand, a negative or low ROI percentage implies that the referral program has not generated sufficient returns to outweigh the investment.
This may call for program optimization, cost reduction, or reassessment of marketing strategies to improve profitability.
Calculate your future return on investment with our Referral Marketing ROI calculator.
